According to Christine Lagarde, the managing director of the International Monetary Fund, the financial crisis is not over and the threat is not what people might expect. The peril comes from the possibility of deflation and its capability of doing serious damage to the global economy. The president of Chicago Fed, Charles Evans, agrees.
The economy is improving slowly, but improving without a doubt. There will be more jobs before deflation becomes an immediate problem. According to Lagarde, the United States can avert another crisis by, “avoid [ing] premature withdrawal of monetary support . . . [and] . . . removing the debt ceiling threat.” Again, there is obvious hope and clear strategies that can be undertaken to improve the risk.
According to Lagarde, the eurozone is on its way to recovery and will do much better if the European Central Bank offers more help. There will be asset quality and stress tests in the near future and, if they are done correctly, they could help. Targeted lending is another way the bank could boost the economy.
As for Japan, a country that has had a deflation problem for some time now, Lagarde believes it needs more strategies for bouncing back. She suggests a temporary stimulus to balance out the necessary consumption tax increase. The country requires reforms that will work for the medium-term.